Shanghai Covid blockade ‘will have global impact on almost every trade’

The path of closures in Shanghai and other Chinese cities is putting severe pressure on transport and logistics across the country, exacerbating the economic impact of the government’s commitment to its zero-covid policy as cases continue to rise to record levels.

The crash affected, in particular, the trucking industry, which plays an important role in transporting goods between cities and to some of the world’s largest ports, but is now subject to severe restrictions on drivers and delivery to places with positive cases.

“The main problem we have is trucking,” said Mads Rawn, executive vice president and global head of air procurement at DSV, one of the world’s largest freight brokerage companies. He added that booking truck services was almost impossible and that flights to Shanghai Pudong Airport accounted for only 3 per cent of its speed last month, and air travel was limited to essential goods such as medicines.

“Basically everything else is not moving, but being diverted from Shanghai to other parts of China. It affects every product you can come up with, ”he said. “It will have a global impact on almost every deal.”

China has been battling its worst coronavirus outbreak since it first appeared in Wuhan more than two years ago. On Thursday, Shanghai reported nearly 20,000 new cases, a record for the city.

Danish shipping company Maersk warned in late March that measures to block the city would cut freight services to and from Shanghai by 30 percent.

But since then, restrictions that were originally supposed to split the city in two for a successive nine-day closure have become tougher and outgrown, covering the entire city at once. It is unclear when the measures will be relaxed.

Danish shipping group Maersk has warned that blocking measures in Shanghai will reduce freight traffic in and out of the city by 30% © Qilai Shen / Bloomberg

The measures, which in Shanghai have led to a number of complaints of difficulty in obtaining food when drones survey empty streets, have also been more widely implemented in China, with officials struggling to contain the outbreak. This week, Japan’s Nomura Bank estimated that 23 cities and nearly 200 million people are under full or partial closure.

“These figures could greatly underestimate the full impact, as many other cities have mass-tested district after district, and mobility has been severely limited in most parts of China,” said Ting Lu, Nomura’s chief economist for China.

Bo Zhuang, a Singaporean analyst with Loomis Sayles, an asset manager, said: “Many entry and exit points on highways between provinces are blocked, and there have been no coordinated efforts between governments in different provinces to ease supply chains.”

Express delivery companies in Anhui and Jiangsu provinces, both in the east and near Shanghai, told the Financial Times that packages could not be delivered to any areas where infections were reported locally, including Shanghai.

Orders from Taobao, an online market popular with Chinese consumers, have been delayed due to blocking measures.

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In addition to domestic disruptions, analysts warn that any internal logistics bottlenecks will eventually lead to delays in ocean delivery due to the accumulation of goods and orders – and that the associated costs will pop up if measures are finally eased.

“Once Shanghai reopens, it’s a deja vu story we’ve seen so many times,” said Lars Jensen, CEO of Vespucci Maritime Consulting. “There will be a surge in volumes and increased pressure on spot rates.”

The latest economic data on Wednesday show the consequences of the recent escalation of control: the index of purchasing managers of Chinese service Caixin shows the worst monthly decline in March since early 2020.

There is no evidence of unusually long queues outside the world’s largest port in Shanghai, which authorities said had a closed-loop system where workers did not leave their workplaces after the shift.

But cargo volumes through the port tracked by FourKites, a group of supply chain data, have fallen by about a third since March 12 as importers and exporters redirected cargo.

The state-run China Daily reported that goods are increasingly being shipped to Shanghai by sea because many neighboring cities have blocked the entry of truck drivers.

Last week, Maersk said it could provide services via “barge or rail as an alternative solution for the corridor between Shanghai and nearby cities.”

But Bo of Loomis Sales said it was only a “temporary solution” because as the virus spreads to more cities and provinces, these redirected channels are likely to also be blocked by blocking measures.

Additional reports by Wang Xueqiao in Shanghai, Nyan Liu in Beijing and Andy Lin in Hong Kong

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